Monday, 5 November 2012

“It’s the economy, stupid” – or is it?

The phrase “it’s the economy, stupid” encapsulates the strategy used by Bill Clinton in his election battle with George Bush senior in 1992.  The blame for the recession at the time was attributed Bush senior and this helped Clinton to victory.  Twenty years later, Mitt Romney may have thought that a similar message would aid him in his bid to become president.  The four years that Barack Obama has been in power has coincided with the harshest economic downturn in living memory and a surprisingly weak recovery such that GDP has only edged up 0.7% between 2009 and 2011.  But the outlook for the economy has brightened a tad recently following the release of upbeat data on GDP and jobs in the United States.  Anecdotal evidence would suggest that this would be a boost to Obama but this may not hold true in an election where the candidates have sidestepped the big issues.

Economists like to point out that the state of the economy is a good guide to the plight of an incumbent in a presidential election.  Voters everywhere tend to hold politicians accountable for economic growth even though there is little that politicians can do to in this regard.  Obama was unlucky to have been voted in while the global financial crisis was still wreaking havoc.  The record of Obama’s management of the economy is hard to asses given the unique circumstances – Obama has been criticised for the assistance given to the finance sector and for the bailing out of firms such as the car maker GM but no one can know whether these actions actually staved off more wide spread disaster.

But it is economic welfare of the voters and their beliefs on how the future will pan out which is the crucial factor.  And in this regard, Obama has been getting small bits of good news among all of the doom and gloom.  In GDP figures for the third quarter (July to September) of 2012 released in late October, the economy was shown to have grown by 2.0% which is slightly faster than was expected.  Job data published one week later also exceeded expectations with 171,000 jobs being created in the US economy in October and unemployment below 8%.  Neither bit of news permits much optimism about the end of tough times and businesses will have to hire significantly more workers to make a significant dent in the unemployment rate (for more, see US Jobs Data).  But the signs of improvement may be enough to some to have hope.

But it is still unclear whether the slightly brighter outlook will be much of a boost to Obama.  Your Neighbourhood Economist would argue that news on the economy will only sway those who were undecided but these voters have been side-lined by campaigning which has vilified the personalities of the candidates rather than proposed solutions to the problems plaguing the United States.  So the election results are more likely to depend on how many Democrats and Republican can be bothered to vote for their respective candidates as both Obama and Romney have been underwhelming and failed to inspire a following from anyone else but their core supports.  Not the best way to decide who will be leading the country for the next four years and something that is likely to result in further disappointment (but more on that coming soon).

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